Stericycle exploring new depths

There's not a lot to tell about Jason Donville these times, so, I keep going with François Rochon and his picks.

When you first look at Rochon's selection (Giverny Capital) via Whale Wisdom, you ask yourself: "How does this guy works?" because you find a lot of average ROE and average growth stocks. Plus,  almost all these stocks have a high PE ratio. The only thing we can think is that these businesses have a fucking amazing moat that we didn't know about.

Among Giverny Capital's list, you'll find Mohawk, LKQ, Buffalo Wild Wings and Stericycle. All average ROE, all average growth and high PE.

Let's take a look at Stericycle.

Some people say it's a monopoly. That business collects and destroys medical waste.

I've never understood how a business in that field could be a monopoly.

What do you need to collect needles and other medical waste? Some protecting gloves. And probably some container to put waste in it. And then you put that shit in an incinerator and that's it. OK, they probably manipulate some oncology stuff, full of uranium, plutonium or any other radioactive stuff that they'll use to make cars fly in the future. That's probably the tricky part but I'm sure that they can bury that shit under a school on a weekend, when everybody looks elsewhere.

The market has always seen Stericycle as some kind of super mega giga invulnerable business. The stock went from about 29$ in august 2005 to almost 150$ in august 2015 (5 baggers). Since then, the stock lost half it's value. The stock is now selling for about 77-78$.

The average PE ratio of the last 5 years was 34. The actual PE ratio is 29. That's very high for a business with an average growth rate (the growth has been good for some years in the past but it wasn't consistent). Note that EPS are now almost the same in 2016 as they were in 2011.

The ROE has been between 18 and 23 since 2006 but is now much lower than that (actual ROE: 10).

The debt is high (about 15 times earnings), they recently had issues with accounting and their latest acquisition (Shred-It) raises some questions. How come buying that kind of business? I don't know. Please, ask someone else.

Some could argue that, with a forward PE of about 15, this stock looks pretty cheap on an historical basis.

That's true. But there's a lot of other stocks out there with a forward PE of 15, with better growth, better ROE and no accounting issues. My latest experience with accounting issues was unforgettable: Oh, sweet Valeant.

So, forget the free fall of Stericycle as an indicator to buy it. That's a mistake we all do. We should compare stocks with other stocks and not with themselves.